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Software // Enterprise Applications
10:55 AM

Billion-Dollar Bet

Inspired by a relative newcomer, SAP is banking on its Web-services-based NetWeaver to become an IT-platform vendor.

SAP's future began on a cold February day in 2002 during the company's annual retreat at Sylt, an island in the North Sea just off the coast of Germany. There, dozens of SAP executives first saw a technology that ultimately will replace almost all the code and logic underscoring SAP's existing and extremely successful applications portfolio. The architect: Shai Agassi, a 36-year-old Israeli who's been with the company for just four years.

NetWeaver architect Shai Agassi introduced the Web-services-based application and integration platform two years ago. Photo by Angela Wyant

NetWeaver architect Shai Agassi introduced the Web-services-based application and integration platform two years ago.

Photo by Angela Wyant
It's a future that looks markedly different from SAP's heritage as the company that defined the market for enterprise-resource-planning software. Though SAP is the world's third-largest software vendor, with more than 22,000 customers in 120 countries and $8.9 billion in revenue last year, the company is thinking bigger. It's remaking itself into a platform vendor that will sell everything from application servers to middleware to Web services. It will offer slivers of applications--called composite or "snap-on" apps built using services from other SAP apps--up to full-blown business-process sets such as cash management.

If SAP chairman and CEO Henning Kagermann has his way, this future will put SAP even closer to the top of the software world, just behind Microsoft and ahead of current No. 2 Oracle. "You cannot decouple integration from applications in the future," Kagermann says. "To deliver good software solutions, you need deep application knowledge, integration infrastructure, and application components that together make the solution. We want to deliver all of those."

SAP's strategy in large part is riding on NetWeaver, the application and integration platform that's the result of a blueprint Agassi outlined on that freezing day two years ago. Unveiled in January 2003, NetWeaver now is the multipurpose engine inside most of SAP's mySAP Business Suite, which includes ERP software, supplier- and customer-relationship-management apps, and supply-chain and product-life-cycle-management software. Initially, SAP leaders thought NetWeaver, which incorporates Web services, would merely bridge SAP and non-SAP environments. But as Web services have grown in popularity, and as SAP has put its technology to the test, the vision has broadened. The technology now puts SAP "in the unique position to be the biggest player" in a new IT ecosystem, Agassi says, at the center of customers' jumbles of applications, services, business-process sets, and even other application and integration platforms, such as Microsoft's .Net and IBM's WebSphere.

Gaining substantial ground as a platform provider will require some serious jostling with IBM and Microsoft-- recently a partner in abandoned merger talks--and Oracle. Each wants to increase its share of mind and market by being the technology partner on which everything else rests, says AMR Research senior VP Jim Shepherd. "SAP would like its customers to view SAP as their primary information-system platform," he says, basing all their business-technology decisions on the fact that they've standardized on an SAP environment.

Because SAP's software is the system of record for some of the largest organizations on the planet, the company has had to tread carefully. According to research firm Gartner, SAP in 2002 had the biggest bite, about 25%, of the worldwide ERP market. "Almost half the industrialized world goes through SAP at one point or another, and if we take a risk and our systems fail, the risk is so high that we could put lots of businesses in jeopardy," Agassi says.

Whirlpool is ready to leverage NetWeaver components, CIO Esat Sezer says, to help the company manage innovation. Photo by Chris Lake

Whirlpool is ready to leverage NetWeaver components, CIO Esat Sezer says, to help the company manage innovation.

Photo by Chris Lake
As it considered making NetWeaver a bigger part of its strategy, SAP leaders weren't at all sure the degree to which the company could move its applications to NetWeaver and what the vendor calls its Enterprise Services Architecture, which exploits all of NetWeaver's Web services to enable an integrated system where business processes can be assembled on the fly. "The bar is very high for SAP," Shepherd says. "Its software has to scale to extraordinary degrees. Web services in a very complex, robust application environment were an unknown entity. Nobody had ever approached that."

But some customers seemed eager for such an effort. "We need to simplify our application infrastructure," says Esat Sezer, CIO at Whirlpool Corp., which uses SAP ERP, supply-chain, and CRM applications all over the world. "We've said to them, 'Why can't you leverage your discipline and strength on business-process integration and create a technology that could give us a step-by-step approach to do that?'"

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